Numerous challenges affect the Palestinian economy due to the coronavirus

The PA announced the implementation of the provisions of the emergency budget and focused spending priorities in the coming period on several items, especially helping the poor, supporting health care, providing employee salaries and security needs. This is despite the fact that the PA needs $120 million to confront the coronavirus crisis and its budget deficit may reach $3 billion, with the decline in domestic revenues by 50 per cent. This increases the probability of it resorting to borrowing, after the Palestinian economy lost $3.5 billion because of the crisis.

With the coronavirus pandemic crisis entering its third month in the Palestinian territories, the Central Bureau of Statistics announced that the Palestinian economy will incur an estimated loss of $2.5 billion if the pandemic continues for another three months and the situation gradually returns to what it was before the crisis. It is also expected that the GDP will decrease by 14 per cent in 2020 compared to 2019.

These statistics reveal that the Palestinian economy is facing a number of difficult scenarios related to the continued impact of the crisis resulting from Covid-19. This is especially after declaring a state of emergency in the West Bank, restricting movement between the Palestinian governorates and cities and decisions issued by the Palestinian government regarding the return of Palestinian workers from inside Israel to the West Bank, Gaza Strip and Jerusalem, given the fact that the coronavirus has spread greatly amongst the Israeli occupation.

It is difficult to discuss the effects of the coronavirus on the Palestinian economy, without acknowledging the fact that this economy is facing challenges that have caused a set of political and economic crises and shocks over the past years. The most recent of these crises was the Palestinian tax revenue crisis with Israel in 2019.

The year 2020 was no exception, as the Palestinian economy was exposed at the end of February to a new crisis of a global nature represented by the coronavirus, and it is considered the first such illness that Palestine has been exposed to in its modern history. The pandemic is expected to have greater repercussions on the economy as a whole.

Coronavirus spreading in the Middle East - Cartoon [Sabaaneh/MiddleEastMonitor]

Coronavirus spreading in the Middle East – Cartoon [Sabaaneh/MiddleEastMonitor]

We can talk about the extent of the expected damage to the Palestinian economy as a result of the spread of the coronavirus based on a number of scenarios related to the continuation of the crisis for several months. This is specially as the Palestinian financial authorities, including the Ministry of Finance, the Palestine Monetary Authority, or the banking system, carried out a series of measures focused on pumping more liquidity in the economy to mitigate the repercussions of the crisis, as well as to stimulate economic activity.

This coincides with the Palestinian government’s continued closure of all tourism sector facilities, specifically restaurants, hotels and cafes and the continued closure of shops, except for grocery shops, health facilities, pharmacies and petrol stations.

In addition to the above, the months of April and May 2020 witnessed a decline in the Palestinian foreign trade movement with the outside world, due to the closure of factories and facilities specialised in producing some commodities in the trading partner countries. There has also been a decline of the Palestinian commercial movement with Israel in particular, and its concentration on basic materials only. This is coupled with high government spending for the health sector related to the cost of direct treatment and sterilisation costs for institutions.

There has also been a sharp decline in tax collection and the reduced ability of enterprises, especially medium and micro, to pay salaries, due to the decline in production and profits.

The results of this scenario indicate that the gross domestic product for 2020 is expected to decrease by 14 per cent compared to 2019, and the total Palestinian economic losses are estimated at $2.5 billion. This is the result of a decrease in total public and private consumption by $1.3 billion and a decrease in investment by $2.1 billion, while imports fell $1 billion.

Besides this data, the World Bank predicted the Palestinian economy to shrink up to seven per cent.

The crisis has been exacerbated by the private sector’s decision to reduce wages by 50 per cent and the PA’s ruling that more than 140,000 Palestinian workers are no longer able to enter Israel. The families of those working in Israel represent a third of private consumers because their average salary is 2.3 times higher than that of workers in the Palestinian territories.

The main problem facing the Palestinian economy is that it lacks the policy tools that are under the control of the Palestinian Authority, such as financial stimulus, liquidity pumping or external borrowing, which will leave it exposed to great risks, at a time when it is very weak.

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